Cheque fraud is a growing problem for the banking industry and other financial institutions that offer chequing account services. More than 1.2 million worthless cheques enter the North American banking system daily and most of these are fraudulent. Annual losses in North America is estimated to be about $10 billion with banks, corporations and merchants bearing most of the losses. An estimated 60% of cheque fraud constitutes alteration of the payee or the amount of a cheque. Typically, a completed corporate cheque is obtained and readily available technologies are used to alter the payee name or amount of the cheque. An attempt will then be made to cash the fraudulent cheque using stolen or forged identification.
Cheque fraud is particularly troublesome in view of the large volumes of computer generated cheques for stock dividends and payroll cheques generated by automatic cheque preparation systems used extensively throughout North America and Europe. These automated cheque issuance systems make it easier for cheque forgers to alter and process fraudulent cheques since fewer customer cheques are physically handled and reviewed by bank personnel, making it more likely that altered cheques will go undetected. Even when physically inspected, however, many of these falsified items very closely resemble the original cheque drawn on the same customer account that the counterfeit cheque is not detected.
Advanced cheque production systems have been developed which print MICR (MCR) codes onto cheques and special types of cheque papers are used by banks to counteract these widespread fraudulent practices. However, these techniques are readily available to counterfeiters and are incorporated into counterfeiting production. Further, fraudulent individuals and organized groups have access to a variety of means to recreate and duplicate documents. Colour copiers, scanners, desktop publishing programs and laser printers can all be used to manipulate information or create a new document.
Existing fraud detection systems such as those disclosed in U.S. Pat. No. 5,781,654 to Carney are designed to scan and generate a unique identifier code which is then associated with the cheque (e.g. printed on the cheque). At the receiving station (i.e. bank teller), the cheque is again scanned and another code is generated using “complementary” encoding techniques. Finally, the two codes are compared to confirm that the cheque data has not changed since issue. However, the implementation of this kind of fraud detection system usually requires substantial changes to existing cheque processing procedures and facilities and requires bank teller participation.